Confusing Maintenance Responsibility with Insurance Requirements

I was once approached by the property manager of a condominium association with a  simple question:  “there is a leaky pipe between two units in the condominium and the Board wants to know who has to repair it.”  A quick review of the covenants showed that the pipe was almost certainly the maintenance responsibility of an owner.  Ten days later I got another email from the same association.  The Board wanted to “confirm” that they did not have to allow the unit owner to file a claim under the master insurance policy for over $20,000.00 worth of damage “because you said the pipe was the owner’s maintenance responsibility.”  

I learned an important lesson that day:  always make sure you have all the facts when responding to what seems like a simple question.  The board for the association learned an even more valuable one, however:  that maintenance and insurance questions often have very different answers.  The condominium association above ended up being lucky:  they managed to file a claim for the incident with the condominium’s insurer just before the deadline ran.  Some associations are not as lucky, which is why it is important for every director to understand the profound difference between maintenance and insurance requirements.   

In condominiums, generally speaking, the Georgia Condominium Act requires the association to obtain a master insurance policy for all portions of the Condominium, including all common elements and units, for the benefit of the association and each owner.  Other associations have insurance requirements dictated by the covenants instead of Georgia law, but often fall along the same lines as maintenance responsibility.  The problems arise when a board looks only to the maintenance provisions, which assign maintenance between the owners and the association, to determine whether or not to file an insurance claim.  Because many policies are for the benefit of the owners as well as the association, an association is required to allow an owner to file a claim with the association’s policy if the damage is covered by the policy and the cost of repair exceeds the deductible – this holds true even when a damaged area is an owner’s maintenance responsibility.  

In the situation above, for instance, the pipe was an owner maintenance responsibility because it served only one unit and the maintenance provision assigned this type of pipe maintenance to the owner of the benefitted unit.  However, because the master insurance policy covered all units in addition to the common elements, the master insurance policy potentially covered the damage caused.  The association mistakenly assumed that because the maintenance responsibility fell to the owner, the board could prohibit the owner from making a claim under the master insurance policy.  This was incorrect:  because master insurance policies are generally held in favor of the association and owners, it is each owner’s right to have the association file a claim under the master policy if the damage is covered and the cost will exceed the deductible.    

There are a number of reasons why an association would want to limit an owner’s ability to make a claim.  A board might think the owner “doesn’t deserve” to get bailed out by the master policy since it is their maintenance issue and all owners pay the policy premiums.  The board may be concerned that filing another claim will increase those insurance premiums or even cause the association to get dropped by the insurer.  Whatever the reason, if Georgia law or the covenants requires the association to carry a master policy in favor of all owners, the association is required to allow a covered claim to be filed upon request by the owner.

The potential liability for failure to allow an owner to file a claim can be catastrophic.  If the association above had failed to submit a claim in time, the association would probably have been on the hook for any damage not covered by an individual unit owner’s policy.  In addition, failure to file a claim for covered damage within any reporting deadlines set by the insurance provider could constitute negligence on the part of the board and can lead to damage beyond the simple cost of repair of the issue.  

Maintenance and insurance questions, and the interplay between the two, can get complex in a hurry.  Since there are strict timelines involved for reporting damage to an insurance carrier, it is extremely important to seek legal advice as soon as damage occurs.  Avoid the horror of association liability by always knowing the difference between maintenance and insurance requirements and understanding when a claim must be filed and who can file it.